HIGHLIGHTS OF NEW LAWS AFFECTING COMMON INTEREST SUBDIVISIONS

By: Helsing Admin

Although the quantity of new laws relating to common interest developments that the California Legislature adopted in 2011 was relatively low, it was nonetheless an eventful year. This Newsletter summarizes the most significant changes that take effect on January 1, 2012 and offers some observations and commentary regarding the new laws.

Board Meetings

Senate Bill 563

SB 563 makes several major changes to the Common Interest Development Open Meeting Act[1] that most practitioners agree will make it more cumbersome for boards of directors to conduct association business.

All Board Decisions Must be made at Meetings (except in an “Emergency”). The most significant change made by SB 563 is that the Open Meeting Act now expressly prohibits boards from “taking action on any item of business” outside of board meetings. Directors are expressly prohibited from taking action by e-mail, except in “emergency” situations.[2] To address an emergency situation, if the entire board consents in writing to meet electronically (by e-mail or other method of electronic communication), it may do so. The written consents (which may also be made electronically) must then be filed with the minutes of that emergency meeting. Because of the potential for differences of opinion as to what constitutes an “emergency”, and because of the significant risk to the association for violating the Open Meeting Act, we strongly caution boards against even discussing association matters by e-mail, let alone taking action, without first consulting with legal counsel to assist in determining whether the situation is truly an “emergency”. This new law also seems to expressly prohibit boards from taking action outside of a meeting by “unanimous written consent”, even though the California Corporations Code continues to authorize that process for nonprofit corporations generally.[3]

Notice of Executive Sessions Must be given to the Members. Another significant change under SB 563 is that boards of directors must now provide notice of all non-emergency executive sessions to the non-director members, at least two days prior to the meeting and in the same manner as notice of open meetings of the board is given. Like open meetings, the notice of a meeting in executive session must include the agenda for the meeting. Because matters discussed in executive session are typically sensitive and/or confidential, we recommend that the agenda contain a general reference to the topics to be discussed, rather than specific details such as owners’ names, etc.[4]

Action Taken in Executive Session is Limited to the Agenda Topics. SB 563 also now prohibits boards from discussing or taking action in executive session on any matters that were not on the executive session agenda, subject to the same exceptions that apply to open board meetings.

Meetings by Conference Telephone (or Other Electronic Means). SB 563 makes conducting a board meeting via conference telephone or other electronic means more difficult as well. The board is now required to specify a physical location in the notice of meeting, at which at least one director must be personally present, so that association members can attend and listen in to the meeting (and participate when appropriate as they would for any other open board meeting).

Definition of “Meeting”. SB 563 significantly changes the definition of “meeting”, for purposes of the Open Meeting Act, to be either a teleconference meeting or “a congregation of a majority of the board in the same time and place to hear, discuss, or deliberate upon any item of business that is within the authority of the board”. As a result, the old position that the subject matter of conversation during a gathering of a majority of the directors was not a matter “scheduled to be heard by the board” (which was part of the old definition of “meeting”) is no longer valid. Scheduled or not, if the topic to be heard, discussed or deliberated is one that is within the authority of the board on which to make a decision, the gathering is a “meeting”.

Delegation of Authority is Permitted. SB 563 allows board to delegate actions within its authority to association officers, “committees of the board”[5] and managing agents, which will enable those people to take action outside of formal open board meetings.

Legality of “Stand-Alone” Executive Sessions Confirmed. If there is one positive to be gleaned from SB 563, it is that the bill explicitly clarifies what most practitioners and legal commentator had always believed was true: boards of directors are permitted to meet in executive session without the necessity of first convening an open meeting and then immediately “adjourning” to executive session. As amended by SB 563, Section 1363.05(b) expressly provides that “the board [may] adjourn to, or meet solely in, executive session” to consider certain specified subjects.[6]

Rental Prohibitions

Senate Bill 150

SB 150 marks the first time that the Legislature has created legislation within the Davis-Stirling Common Interest Development Act that addresses rental prohibitions directly. While the scope of SB 150 is relatively limited, the new law definitely brings some benefits and clarity to the topic of rental prohibitions. Unfortunately, the Legislature also left many questions unanswered and while some controversies will likely be extinguished by this new legislation, new controversies will undoubtedly arise as well.

New Section 1360.2. New Section 1360.2 applies only to rental restrictions that (1) “prohibit the rental or leasing of any of the separate interests” in a residential development and (2) become effective on or after January 1, 2012. Contrary to popular belief, Section 1360.2 does not, in any way, shape or form prohibit the imposition or adoption of rental restrictions after January 1, 2012. Instead, the primary effect of Section 1360.2 is that any restriction adopted after January 1, 2012 that prohibits rentals does not apply to an owner of a separate interest “unless that governing document, or amendment thereto, was effective prior to the date the owner acquired title to his or her separate interest.” In other words, Section 1360.2 imposes a mandatory “grandfathering” for any owner who acquired title to his or her separate interest prior to the date a restriction that prohibits the rental or leasing of a separate interest becomes effective. However, a grandfathered owner does have the ability to consent to be subject to an “after-adopted” rental restriction, if he or she so chooses. An owner who wishes to rent his or her separate interest pursuant to such owner’s grandfathered status must provide his or her association verification of the date he or she acquired title to the separate interest, as well as the prospective tenant’s name and contact information.

Certain Transfers Exempted. Appropriately (in our opinion), the new law identifies certain title transfers by grandfathered owners that do not terminate the grandfather status. Those include transfers that do not trigger property tax reassessment under Section 62 or Section 480.3 of the California Revenue and Taxation Code, and certain probate, spousal, or marital dissolution transfers.

Update to Section 1368 Disclosures. SB 150 also makes changes to Section 1368, the statute that specifies the documents that the owner of a separate interest in a common interest development must provide to a prospective purchaser. An owner must now also provide a statement describing any rental prohibition in the governing documents and its applicability. Upon the owner’s request, the association must provide to the requesting owner all of the documents specified in Section 1368 (including the statement regarding rental prohibitions) so that the owner can provide them to the purchaser. Associations with rental prohibitions will need to prepare appropriate statements to include in their Section 1368 escrow packages.

Not Applicable to Commercial / Industrial Associations. The final provision of SB 150 modifies Section 1373 to include Section 1360.2 as one of the many sections of the Davis-Stirling Act that do not apply to commercial and industrial common interest developments. Rental prohibitions in commercial and industrial developments apply equally to all owners regardless of when the prohibition went into effect or when the owner acquired the separate interest.

Electric Vehicle Charging Stations

Senate Bill 209

New Section 1353.9. SB 209 adds new Section 1353.9 to the Davis-Stirling Act. Section 1353.9 provides that any provision in a governing document that effectively prohibits or restricts the installation or use of an electric vehicle charging station is void and unenforceable. However, Section 1353.9 does authorize an association to adopt “reasonable restrictions” on the charging stations. “Reasonable restrictions” are those which do not “significantly increase the cost of the station or significantly decrease its efficiency or specified performance”.

Design and Architectural Approval. All charging stations must be designed in compliance with the California Building Standards Code and must meet applicable health and safety standards and requirements imposed by state and local permitting authorities. If the association requires approval before installation or use of a charging station, the application for approval shall be processed and approved in the same manner an application for any other architectural modification in the development. Approval or denial must be in writing, and an application is deemed approved if not denied in writing by the Association within 60 days from the date of receipt of the application, unless the delay is the result of a reasonable request for additional information.

Installation on Common Area. One area of considerable concern for associations is that Section 1353.9 expressly requires associations to permit owners to install charging stations within the common areas of the development, including exclusive use common areas. If an owner requests and properly applies to place a charging station in the common area or exclusive use common area, the Association must approve the station so long as the owner agrees in writing to do each of the following:

(1) comply with the development’s architectural standards for the installation of the station,

(2) engage a licensed contractor to install the station,

(3) provide a certificate of insurance that names the association as an additional insured under the owner’s insurance policy, within 14 days of approval of the station by the association, and

(4) pay for the electricity usage for the station.

The owner of the parking stall on which or near where the electric vehicle charging station is placed shall be responsible for all of the following:

(1) costs for damage to the station, common areas, exclusive use common areas, or adjacent units resulting from the installation, maintenance, repair, removal, or replacement of the station,

(2) costs for the maintenance, removal, repair, and replacement of the electric vehicle charging station until it has been removed from the common area or exclusive use common area,

(3) the cost of electricity associated with the station,

(4) disclosing to prospective buyers the existence of any electric vehicle charging station and the related responsibilities of the buyer when he or she becomes the owner, and

(5) maintaining an umbrella liability coverage policy in the amount of $1,000,000 covering these obligations of the owner, and naming the association as an additional insured under the policy with a right to notice of cancellation.

Penalty for Violation / Attorneys’ Fees. An association that willfully violates Section 1353.9 will be liable to the applicant or other party for actual damages, and is subject to the imposition of a civil penalty payable to the applicant or other party in an amount not to exceed $1,000. Prevailing parties in any action to enforce Section 1353.9 are entitled to reasonable attorneys’ fees.

Commentary. SB 209 is relatively harmless in the context of owners who want to install an electric vehicle charging station on their own lot or in their own garage. The main potential for concern is the provision of the statute which permits owners to install charging stations in the common areas and exclusive use common areas (such as a parking stall). While the requirements and obligations for any owner wanting to install a charging station on common area are somewhat major, we have no doubt there will be certain owners willing to undertake those obligations. With no clear limitation in the statute on where in the common area the station may be placed, there could be some very interesting (and problematic) legal questions that will need to be addressed in the coming months.

Discriminatory Restriction Disclosure Statement

Assembly Bill 887

AB 887 makes numerous changes to various California statutes regarding sex and gender, including how those characteristics are defined and how discrimination on the basis of those characteristics is treated. Of particular interest to associations is the change made to California Government Code Section 12956.1, which is the section that requires associations to include a certain statement on the cover or first page of a copy of a declaration, governing document or deed that the association distributes to any person. This is an important change which will have an immediate effect since associations (and their management companies) frequently distribute copies of declarations and other governing documents to persons. The required disclosure statement has been changed to read as follows:[7]

If this document contains any restriction based on race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, familial status, marital status, disability, genetic information, national origin, source of income as defined in subdivision (p) of Section 12955, or ancestry, that restriction violates state and federal fair housing laws and is void, and may be removed pursuant to Section 12956.2 of the Government Code. Lawful restrictions under state and federal law on the age of occupants in senior housing or housing for older persons shall not be construed as restrictions based on familial status.

Sale Disclosure Documents

Assembly Bill 771

AB 771 makes additional changes to Section 1368, the statute that specifies the documents that the owner of a separate interest in a common interest development must provide to a prospective purchaser.[8] If specifically requested by the purchaser, an owner must now also provide copies of the approved minutes of all open session board meetings conducted over the previous 12 months. Upon the owner’s request, the association must provide to the requesting owner all of the documents specified in Section 1368 (including the copies of the minutes) so that the owner can provide them to the purchaser.

AB 771 also authorizes an association to post the Section 1368 documents on its website, and it prohibits an association from charging a fee for the subsequent electronic delivery of the documents. The bill clarifies that the “reasonable fee” that an association is entitled to collect for providing the requested documents under Section 1368 must be based on the association’s actual cost for procurement, preparation, reproduction, and delivery of the requested documents.

In addition, the bill requires that, upon request by a seller to the association for documents under Section 1368, the association must first submit a written or electronic estimate of the fees for preparing, reproducing and delivering the documents to the requesting seller on the form provided in new Section 1368.2 (also added by AB 771). Then, the completed form must be provided again to the seller at the time the requested documents are actually delivered.

Finally, an association may not withhold delivery of the documents to the requesting seller under Section 1368 for any reason other than nonpayment of the reasonable fee. In addition, the bill makes clear that associations may contract with third parties (such as management companies) to facilitate the association’s compliance with the requirements of Section 1368.

[1]California Civil Code Section 1363.05; the “Open Meeting Act”. All statutory references in this Newsletter are to the California Civil Code, unless otherwise specifically noted.
[2]Section 1363.05(g) defines emergency situations as “circumstances that could not have been reasonably foreseen which require immediate attention and possible action by the board, and which of necessity make it impracticable to provide notice as required by this section”.
[3]California Corporations Code Section 7211(b).
[4]SB 563 also includes executive session agendas in the long list of association documents that members are entitled to inspect, under Section 1365.2.
[5]See California Corporations Code Section 7212.
[6]The five circumstances specified in Section 1363.05(b) are: (1) litigation, (2) matters relating to the formation of contracts with third parties, (3) member discipline, (4) personnel matters and (5) meeting with a member regarding the member’s payment of assessments. Most legal practitioners, including us, believe that there are other circumstances where boards may lawfully meet in executive session, such as when a board meets with the association’s attorney to discuss matters that are not “litigation”, because all conversations between an attorney and his/her client are protected by the attorney-client privilege.
[7]Please note that Section 12956.1 requires the statement to be typed in at least 14-point boldface font.
[8]Recall that, as noted above, SB 150 also makes changes to Section 1368, in connection with rental prohibitions in the governing documents.

Copyright 2011

By The law Offices of Deon Stein

All Rights Reserved